The year 2024 was marked by efforts to balance inflation, growth, and geopolitical/political risks, alongside shifts in central bank policies and prevailing uncertainties in financial markets.
Major central banks entered the year with historically high interest rates but transitioned to easing cycles in the second half of the year. While inflation receded from its post-pandemic peaks, its persistent stickiness above target levels in some countries kept monetary policy uncertainties alive.
During this period, some economies delivered robust performances, while others faced significant challenges.
The year 2024 also underscored the tangible impact of geopolitical risks on global economies and financial markets. The ongoing war between Ukraine and Russia, coupled with escalating tensions in the Middle East, kept market participants on high alert.
Similarly, the third quarter of the year was defined by heightened market turbulence fueled by concerns of an impending recession in the U.S. economy.
In the final stretch, the U.S. elections and Donald Trump's victory left their mark on global markets. Certain assets, particularly the U.S. dollar, experienced sharp gains, while other currencies came under pressure against the dollar.
As uncertainties persist in global markets in the early days of 2025, let us take a closer look at the major developments in global economies throughout 2024.
Resilient Growth Amid High Rates: The U.S. Economy in 2024
In 2024, the U.S. economy delivered a robust performance, growing by 2.5% despite the highest interest rates in decades, supported by resilient consumer spending. Inflation fell from its post-pandemic peaks but remained sticky above the 2% target.
The labor market cooled moderately throughout the year, yet the unemployment rate stayed below historic levels.
U.S. stock markets posted strong gains, led by technology stocks. The adoption of artificial intelligence (AI) technologies far outpaced other technological revolutions in history, driving significant market movements in 2024.
Chipmaker NVIDIA soared by over 180% during the year, fueled by AI expectations, while the "Magnificent Seven" tech giants collectively delivered a 70% gain.
Following Donald Trump's election victory, U.S. equities gained fresh momentum amid expectations of a less restrictive regulatory environment and tax cuts boosting profit margins.
The S&P 500, Nasdaq 100, and Dow Jones indices reached record highs.
In the bond market, yields remained attractive as interest rates stayed elevated. Notably, post-election expectations of higher U.S. inflation pushed the yield on the benchmark 10-year Treasury above 4.5%.
Meanwhile, the U.S. dollar surged to its highest levels since 2022.
Europe's Sluggish Growth Amid Easing Price Pressures
Turning to Europe, 2024 was a year of rapidly easing price pressures from pandemic peaks but marked by sluggish economic activity. The region's economy grew by just 0.6% compared to the previous year.
Spain emerged as the fastest-growing economy in the region, with an impressive 3.5% growth. Ireland and Denmark became hubs for technology firms, ranking among the top-performing economies.
Meanwhile, formerly struggling economies like Italy and Greece continued their recovery trajectories.
On the other hand, the region's largest economies disappointed. Germany's economic activity was hindered by high energy costs and stagnant manufacturing industries.
Toward the year's end, political turbulence in Germany and France, the region's two largest economies, further heightened uncertainties.
The European Central Bank (ECB) initiated its easing cycle in June with a quarter-point rate cut. However, it adopted a cautious stance due to the risk of ongoing geopolitical tensions driving up energy costs and stalling progress on inflation.
Nonetheless, the ECB reduced rates by a full percentage point over the course of 2024.
Weak economic performance and a widening interest rate differential caused the euro to slide to its lowest levels against the U.S. dollar in two years.
This decline was fueled by concerns over Trump's trade tariffs potentially weighing on the region's exports and expectations of a growing rate gap between the ECB and the Federal Reserve.
Stagnant Economy: Tough Times for the UK in 2024
Another underperforming economy in 2024 was the United Kingdom. The UK economy likely grew by an average of 0.3% per quarter, with this growth primarily stemming from the first two quarters.
The economy stagnated in the third quarter and is estimated to have shown no growth in the fourth quarter either. Market observers believe that the substantial tax hikes announced in October are likely to lead to a steep decline in private sector activity.
Meanwhile, price pressures in the UK eased throughout the year, but sticky service costs kept core inflation stubbornly above 3%. Persistent inflation prompted the Bank of England to adopt a cautious approach, implementing fewer rate cuts compared to its peers, lowering borrowing costs only slightly from 5.25% to 4.75% over the year.
On the political front, the UK was one of the major nations to undergo a political paradigm shift in 2024. In the general election held in July, the 14-year rule of the Conservative Party came to an end, and the Labour Party secured a majority to take power.
Economic and political uncertainties in the UK contributed to a weakening of the pound against the dollar. However, the decline, at around 2%, was relatively limited compared to other currencies. Nevertheless, the potential implications of Trump's trade policies cast a shadow over the UK's economic outlook.
China's Economic Recovery: Bright Start, Challenging Finish
In Asia, the recovery observed in China's economy at the start of the year had a positive impact on market sentiment. However, weak domestic demand deepened deflationary pressures, while the ongoing real estate crisis and challenges in exports limited the pace of growth.
In the final quarter, Beijing announced a series of stimulus measures aimed at boosting domestic demand and achieving its 5% growth target. Despite these efforts, China likely grew by 4.8%, falling short of the target.
The difficulties faced by the Chinese economy in the second half of the year exerted downward pressure on the prices of many commodities, particularly oil.
On the other hand, 2024 was a strong year for Chinese equities. The Shanghai Composite Index (SSE Composite) rose by 13.9% over the year, reversing a two-year downtrend. This growth was led by the semiconductor sector, buoyed by the AI boom.
However, China faces heightened uncertainty due to threats from Donald Trump to impose tariffs as high as 60%, a move that significantly clouds the outlook for the Chinese economy.
Japan's Economic Struggles Amid Political Turmoil in 2024
The year 2024 was a turbulent one for Japan, both economically and politically. The country likely achieved a modest growth rate of just 0.2%, constrained by weak tourism and struggles in the automotive industry. Inflation remained above 2%, accompanied by significant wage growth.
In March, the Bank of Japan (BoJ) raised interest rates for the first time in 17 years, ending its long-standing negative interest rate policy. However, Japan's rates remained low, fueling carry trade activities and pushing the yen to its lowest levels in 38 years.
In July, the BoJ exceeded market expectations with another rate hike while announcing plans to reduce bond purchases. This led to a sharp appreciation of the yen, triggered market turbulence, and undermined market confidence in the BoJ's communication strategy.
Meanwhile, the shift from decades of deflation to an inflationary economy raised growth expectations. This optimism propelled the Nikkei 225 index to a nearly 20% annual gain, setting a new all-time high.
On the political front, a corruption scandal within the ruling Liberal Democratic Party (LDP) led to the resignation of Prime Minister Fumio Kishida, who was succeeded by Shigeru Ishiba. Shortly after Ishiba took office, an early election was held on October 27.
However, the LDP and its coalition partner, Komeito, lost their majority in the House of Representatives. Uncertainty around the formation of a new government and potential coalition partnerships continues to threaten Japan's political stability.
Conclusion
In conclusion, 2024 was a year dominated by complex dynamics in global economies and pervasive uncertainties in financial markets. As 2025 begins, the uncertainties stemming from Donald Trump's second term continue to weigh heavily on global markets, with investors seeking greater clarity about the future.
It appears that key factors shaping markets in 2025 will include the Federal Reserve's interest rate cuts, the potential impacts of Trump's trade policies on both the U.S. and global economies, the trajectory of ongoing geopolitical and political uncertainties, and Beijing's efforts to revitalize China's economy.